Q&As on the Presentation of Performance Results through the Second Quarter of the Fiscal Year Ending March 31, 2018 (FY2018.3)

Q1: Please explain the reasons for the slowdown in sales of musical instruments in Europe and the United States.

A1: In North America, sales, mainly of digital musical instruments, were below expectations. Factors accounting for this included substantial adjustments in inventories at the dealer level and loss of some orders of portable keyboards for the mass market.
In Europe, we reviewed our transaction conditions with dealers beginning in August, but it is taking time to implement these conditions with our authorized dealers, and this has resulted in delays in some shipments. (Refer to Q6.)
In both the European and American markets, sales at retail shops are moving steadily, and, for this reason store inventories are declining.

Q2: What was the temporary expense related to accounting rebates in China?

A2: Rebates to dealers in China are recognized at the time they are disbursed, but, in part because of the shift to IFRS in the coming years, we made the transition to accrual basis accounting; this resulted in a temporary rise in expenses. These expenses will accrue only in Q2 and not in future quarters.

Q3: What is the status of the activities of Yamaha’s competitors in the musical instrument business?

A3: The status differs by musical instrument category, and, therefore, the explanation will differ, but, in general, we have not observed any major changes. By principle category, in the piano market, leading Chinese manufacturers are continuing to show high rates of growth, but Yamaha is reporting higher growth, so our market share is rising slightly. Our main competitors in the digital piano business are other Japanese manufacturers, but we have not noticed any major changes in this business. In wind instruments also, we are continuing to sell top-end instruments, including trumpets, alto saxophones, and tenor saxophones, and we believe that our competitiveness is increasing.

Q4: In the second half of the fiscal year, what is the status of the schedule for the introduction of new and promising products going forward?

A4: In the first half of the fiscal year, we lagged slightly in introducing new products to the market, but, at present, the new products that we are scheduled to introduce in the second half are already in production and believe there will be no delays.

Q5: Could you give us more details on the 3.0 billion yen impact of foreign currency fluctuations on the outlook for operating income for the full fiscal year?

A5: The impact of foreign currency fluctuations in the first half was –1.3 billion yen. Since the outlook for the full year is +3.0 billion yen, this means we are looking for a +4.3 billion yen impact in the second half of the year. Among forward contract purchases in euros, which have the greatest impact, we bought at 122 yen to the euro in the first half and made forward contract arrangements for 130 yen/euro in Q3 and 132 yen/euro in Q4. In addition, the –2.3 billion yen due to eliminations of unrealized profits on inventories in the first half will drop to virtually zero for the full fiscal year. This was because in the first half, the appreciation of the yen in the previous period was followed by a decline in the value of the yen, resulting in a large minus figure year-on-year. During the second half, although the yen weakened in the previous period, we are looking for it to level out and remain almost flat.

Q6: It appears that changes in transaction conditions in Europe may lead to a deterioration of conditions for dealers. Will this cause confusion through the third quarter of the year? Also, please provide more details on the content of these changes.

A6: By changing transaction conditions, Yamaha is looking for “Win-Win” relationships with its dealers, and our aim is to make the transition from volume to quality in sales incentive payments. Since the changes are based on such criteria as giving encouragement for displaying products, providing value for customers, and how products are sold to customers, they are aimed at mutually increasing value added. We are making progress in gaining the understanding of dealers, including understanding of their practical operations.

Q7: Are structural changes in distribution in North America and the shift toward e-commerce a cause of the high level of inventories of digital pianos at the dealer level?

A7: In North America, there are three network categories, namely, independent dealers, (including piano dealers), nationwide musical instrument chain stores, and e-commerce channels, but, at present, conditions are in flux, and what kind of dealer portfolio we should structure going forward must be considered as part of the implementation of our strategy as it relates to our sales network reforms.

Q8: Looking at the results for the first half of the fiscal year, is it possible that Yamaha operations have become more lax because of the steady results thus far.

A8: We reported steady performance in July and August, but sales in Europe and the United States slumped in September. Also, in part because of the emergence of temporary expenses, we reported declines in net sales and income larger than in the previous forecast. Although we could say that temporary factors were responsible for this, if we had foreseen the signs, we might have been able to take the necessary measures. Yesterday, we called our Senior Group Managers together to confirm and make improvements in the current status.

A9: The CSP is positioned as a new concept product in the Clavinova digital piano series and is targeted at developing sales to new customers. We are expecting some upgrading to the CSP.

Q10: What is the outlook going forward for production capacity?

A10: New capacity will go into operation next fiscal year and beyond in Indonesia and India, and this will contribute to expansion in production capacity for products in the low-prices ranges. This will enable us to meet the high growth in demand in China and the emerging countries.

Q11: Does your leaving the outlook for the full fiscal year indicate that you have a buffer in SG&A expenses?

A11: Compared with the previous fiscal year, we are planning on a 5.1 billion yen increase in SG&A expenses, including strategic expenses. To date, the usage of these expenses has lagged slightly, and there is a possibility we may not use the full amount that we planned.

Q12: What is the outlook for China and emerging markets?

A12: Through the second quarter, double-digit growth was continuing in China, and the outlook is for continued favorable performance in the latter half of the fiscal year. About half of the emerging markets have recovered from lackluster conditions last year and are recovering at double-digit rates or more. The outlook is for a continued strong performance in these markets.